Municipal bonds outperformed Treasuries on Friday, strengthening for a fourth straight day.
Yields on municipal bonds maturing in six years fell by as much as one basis point, and yields for bonds maturing in seven to 30 years dropped by as much as two basis points, according to Municipal Market Data's triple-A scale. The 10-year fell by one basis point to 2.27%, according to Municipal Market Advisors' data. The two-year and the 30-year held steady at 0.31% and 3.44% respectively.
Treasuries weakened, with yields on 30-year and the 10-year benchmark climbing three basis points each to 3.30% and 2.49%, respectively. The two-year note yield inched up one basis point to 0.49%.
The weakness in Treasuries follows a sharp yield drop on Thursday, when treasuries' rallied after a Malaysian Airlines plane was shot down over the Ukraine. Typically investors flee to fixed income when global tensions are high.
Municipal bonds' rally this week can mostly be attributed to a delayed reaction treasuries performance, according to investors. While treasuries weakened on Friday, they have been strengthening the last two weeks, pulling in more investors looking for safe haven bonds as fighting in Gaza flared up. From July 7 yields fell three basis points on the two-year note fell, 16 basis points on the 10-year, and 14 basis points on the 30-year.
A recovery by Puerto Rico bonds also contributed to the munirally this week. The yield on Puerto Rico general obligation bonds 8s in 2035 have fallen for seven straight days,
Last week Puerto Rico bonds had sold off following a slew of rating downgrades from the three major rating agencies earlier in July. The yield hike on Puerto Rico debt was so strong that it bled into the larger muni market, causing yields to rise across the curve last week.
Since July 9, the yield on the GO 8s in 2035 has fallen by 65 basis points to 9.08% on Friday, according to data provided by Bloomberg.
The $1.4 billion San Francisco Bay Area Toll Authority revenue bonds sale, the largest deal of the week, set the bar for the rest of the deals that came to market.
Investors found the deal's soft-put feature and unique structure appealing, giving buyers a place to park their cash for the short-term.
The Oregon Department of Administrative Services brought $215 million of triple-A rated lottery bonds to the market on Wednesday that was repriced with tighter spreads.
The repricing came as no surprise to investors, as Oregon is a specialty state that typically trades tighter than other lottery backed bonds.Though credit spreads have greatly narrowed in this sector, traders found the deal attractive given the high state income tax rate.
